Maybe it’s not all the auditors’ faults, all of this sloppy accounting, fraud and scandal? Maybe they’re doing the best they can under difficult circumstances, tight timeframes, tight-fisted clients who don’t understand the strategic role of finance, patchwork technology infrastructure at their clients, and the constantly changing circumstances due to merger, acquisition, divestiture and IPOs…
In the course of my work as a consultant to firms and their clients who are trying to respond to heightened corporate governance and internal control demands under Sarbanes-Oxley on a global level, I have, on occasion, had to talk to people who claim to be accountants. At least, that’s their title… CFOs, Controllers, Accounting Managers, Directors of Accounting, Plant Controllers… You name it, in all cases, whether Certified Public Accountants or not, they are charged with preparing the company’s financial statements. They do it via the drudgery of daily, weekly, monthly and quarterly transaction processing which is now often automated to some extent via SAP, Oracle, PeopleSoft, BAAN or at least Microsoft Excel spreadsheets.
They also use all kind of other software products such as Cognos, Hyperion, Business Objects, SAS and others to combine, extract, re-order, consolidate and roll up numbers from various parts of their company.
But, unfortunately, due in some part to the pre-configuration of transaction templates in these ERP systems and the abdication of responsibility for set-up and maintenance of these systems to IT, many of these so-called accountants have lost (or never learned) the fundamentals of good general ledger accounting and the financial close process. I have an accounting degree but my university degree did not teach me to be a good accountant. Given my interests and aptitude now, you may be surprised to learn that I was not that crazy about accounting when I was in school and my grades showed it. I much preferred my Economics Honors seminars and going out five nights a week and talking to my boyfriend about Marxism.
My education in accounting came with my first job after internal audit, as a financial reporting and general ledger manager at an NYSE-listed electronics component distributor. There, fortunately, one of my staff was an obsessive compulsive named “Cliff” who knew how to work the three-hole punch. We had closing checklists, we had system interface tie-out templates, and we had balance sheet account reconciliation assignments that rotated but were never assigned to the one who was assigned to prepare the journal entries.
Each month, I had to review and approve every single journal entry , prepared manually by writing them out on the form with all debits and credits assigned correctly to the right account numbers. Each entry then had to be keypunched by one of the A/P Clerks, a Teamsters Union member who kept us on a strict schedule so she didn’t get behind in her other important work. We called her “Big Mama” and she was a taskmaster.
Each day of the close had specific entries assigned, based on the buildup of the financial statements and the availability of the interfaces such as accounts payable, accounts receivable and payroll. A posting report was run each night to balance our batch tally of the manual entries to be keypunched to what posted in the system, including resolving errors due to invalid accounts and other tedious details.
Our GL system was a legacy application running on an IBM mainframe, if you haven’t already guessed. Our IT liaison was a gentle African guy named Dean who sometimes ran the wrong tape for an interface, such as mounting the one from the prior month. Therefore, the GL Controller, a rotating honor given to one of the staff accountants each month, had to check and recheck every day for every interface posted and keypunch batch that hit to make sure we got what we were expecting.
“Cliff”, the OCD guy, was the guru. He had been there long enough to know how everything was supposed to work and was the one who trained everyone in turn, including me, in how to “run the close.” I also, of course, reviewed the draft financial statements each day, made notes, did quick analytics, and wrote notes to the staff asking about particular entries. At the end of the close period (we reduced it during my tenure from ten days to about 5…), “Cliff” put all this back up documentation behind the completed closing checklist, which was initialed and dated each day, into another three ring binder which he proudly stored in his office. It gave him a perverse sense of calm to add another black double-wide binder, for each month, each quarter, each year, to his shelves, in reverse chronological order, with a white Dynamo label indicating the month and year and that month’s GL Controller’s name.
So it is with frustration, chagrin and a little contempt that I try to explain to some of the current class of accountants, why things like a closing checklist, regular balance sheet reconciliations, journal entry sign offs, sufficient backup, managerial review of financial statements during the close, and proper reviews and approvals of estimates and analytics are necessary to feel comfortable that their financial statements are complete, true and accurate. They’d rather complain about Sarbanes-Oxley, as if it were some foreign language requiring some unreasonable level of accuracy and unattainable level of professionalism. We should all have someone like “Cliff” to show us the beauty, the symmetry and the tranquility that comes from knowing that the numbers are right.